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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR & SHRI SAKTIJIT DEY
The captioned appeal has been filed by the assessee challenging the order dated 23rd March 2016, passed by the learned Commissioner of Income Tax (Appeals)–56, Mumbai, pertaining to the assessment year 2008–09.
The solitary dispute arising for our consideration is with regard to the addition made on account of adjustment to the arm’s length price of Wash Line imported from overseas Associated Enterprise (AE).
2 M/s. Koch Chemicals Technology Group India Pvt. Ltd.
Brief facts are, the assessee is a resident company. As stated by the Transfer Pricing Officer, assessee is engaged in the business of design and manufacturing of mass transfer products for process solutions, critical applications, process design, engineering and field service facilities. For carrying out such manufacturing activity, the assessee has set up a plant at Savli. As mentioned in Para–4 of the order passed by the Transfer Pricing Officer, during the year under consideration, the assessee reported various international transactions with its overseas AE, one amongst them being, import of Wash Line. The assessee benchmarked the international transactions with the AE. by applying Transactional Net Margin Method (TNMM) on aggregate basis, insofar as, manufacturing segment is concerned. During the proceedings before him, the Transfer Pricing Officer found that the assessee has imported a machine (Wash Line) from its AE valued at US $ 81,551 equivalent to ` 33,09,340. Though, the assessee in its transfer pricing analysis had claimed that the price paid towards import of Wash Line is at arm's length, the Transfer Pricing Officer rejected such claim by stating that the assessee has not provided any evidence in support of valuation of the used Wash Line. On the aforesaid reasoning, he determined the arm’s length price of imported Wash Line at ` nil, thereby, suggesting an adjustment of ` 33,09,340. On the basis of adjustment made by the Transfer Pricing Officer, the 3 M/s. Koch Chemicals Technology Group India Pvt. Ltd. Assessing Officer added back the amount in dispute while completing the assessment for the impugned assessment year.
Further, learned Commissioner (Appeals) also sustained the addition made on account of adjustment made to the arm’s length price of the Wash Line.
The learned Counsel for the assessee submitted, while the assessee had bench marked the international transaction with the AE by adopting one of the prescribed methods, the Transfer Pricing Officer has determined the arm’s length price at nil without following any method prescribed in the statute. He submitted, such method adopted by the Transfer Pricing Officer to determine the arm’s length price being not in conformity with the statutory provisions is legally unsustainable. Hence, the adjustment made by him to the arm’s length price has to be struck down. In support of his contention, learned Counsel for the assessee relied upon the decision of the Tribunal, Mumbai Bench, in Gulf Energy Maritime Services Pvt. Ltd. v/s ITO, [2016] 67 taxmann.com 17 (Mum.) (Trib.).
The learned Departmental Representative relied upon the observations of the Assessing Officer and learned Commissioner (Appeals).
4 M/s. Koch Chemicals Technology Group India Pvt. Ltd.
We have considered rival submissions and perused the material on record. Undisputedly, the assessee during the year under consideration has entered into various international transactions and has benchmarked them by applying TNMM, a statutorily prescribed method. Whereas, the Transfer Pricing Officer has rejected the benchmarking done by the assessee and determined the arm’s length price of the Wash Line imported from the AE at nil with the following observations:–
“B) Import of wash line (USD 8,551 = ` 33,09,340) 7.13 The assessee has not provided any evidence in support of valuation of used was line. Hnece, the ALP is determined at ` nil. An adjustment of ` 33,09,340, is made.”
8. From the aforesaid observations of the Transfer Pricing Officer it is very much clear that without following the mandate of section 92C r/w rule 10B, he has determined the arm’s length price at nil, that too, with some vague and casual observations. Rightly or wrongly, the assessee has benchmarked the international transaction by adopting TNMM. If the Transfer Pricing Officer was not satisfied by the benchmarking done by the assessee under TNMM, he should have proceeded to benchmark the transaction either under TNMM or under any other prescribed method, which according to him, would have been the most appropriate method. Without following the statutory 5 M/s. Koch Chemicals Technology Group India Pvt. Ltd. provisions, the Transfer Pricing Officer has determined the arm’s length price at nil. The learned Commissioner (Appeals), though, admits the fact that the assessee has benchmarked the transaction under TNMM, but he has approved the action of the Transfer Pricing Officer by simply stating that the assessee failed to prove to the satisfaction of the Transfer Pricing Officer that the adoption of TNMM is justified. In our considered opinion, the determination of arm’s length price at nil in a completely perfunctory and ad–hoc basis is not permitted under Chapter–X of the Income Tax Act, 1961. For the aforesaid reasons, the adjustment made to the arm’s length price at `33,09,340, deserves to be deleted. Accordingly, we do so. Grounds are allowed.
In the result, assessee’s appeal stands allowed.
10. Before we part, it is necessary for us to deal with a procedural issue relating to pronouncement of the order. The hearing of this appeal was concluded on 18.02.2020. As per rule 34(5) of the Income Tax (Appellate Tribunal) Rules,1963, ordinarily the appeal order has to be pronounced before expiry of ninety (90) days from the date of conclusion of hearing of appeal. However, on 24.03.2020 a nationwide lockdown was enforced by the Government of India in view of COVID– 19 pandemic. Due to the unprecedented situation arising out of such 6 M/s. Koch Chemicals Technology Group India Pvt. Ltd. lockdown all activities ceased and no normal official work could be done. For this reason only the appeal order could not be pronounced within the period of 90 days. Being faced with a similar situation the Tribunal in case of DCIT V/s JSW Limited, & 6103/Mum/2018, dated 14th May 2020, after interpreting rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963 as well as various decisions of the Hon’ble Supreme Court as well as the Hon’ble Jurisdictional High Court held that due to the extraordinary situation prevailing due to the pandemic, the lockdown period has to be excluded for the purpose of limitation in respect of pronouncement of order as per rule 34(5). The relevant observation of the Bench in this regard is reproduced hereunder for better clarity:–
“7. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 7th January 2020, this order thereon is being pronounced today on 14th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows: (5) The pronouncement may be in any of the following manners: — (a) The Bench may pronounce the order immediately upon the conclusion of the hearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement.
7 M/s. Koch Chemicals Technology Group India Pvt. Ltd.
(c) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily (emphasis supplied by us now) be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board.
Quite clearly, “ordinarily” the order on an appeal should be pronounced by the bench within no more than 90 days from the date of concluding the hearing. It is, however, important to note that the expression “ordinarily” has been used in the said rule itself. This rule was inserted as a result of directions of Hon‟ble jurisdictional High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein Their Lordships had, inter alia, directed that “We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile (emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment”. In the ruled so framed, as a result of these directions, the expression “ordinarily” has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any “extraordinary” circumstances.
9. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon‟ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was 8 M/s. Koch Chemicals Technology Group India Pvt. Ltd.
unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon‟ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that “In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown”. Hon‟ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, “It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”, and also observed that “arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020”. It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the coronavirus “should be considered a case of natural calamity and FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure…”. The term „force majeure‟ has been defined in Black‟s Law Dictionary, as „an event or effect that can be neither anticipated nor controlled‟ When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an “ordinary” period.
In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and 9 M/s. Koch Chemicals Technology Group India Pvt. Ltd.
spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon‟ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon‟ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed “while calculating the time for disposal of matters made timebound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suo motu by Hon‟ble jurisdictional High Court and Hon‟ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”, in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case.‟‟